The 70% Rule for BRRRR: Where It Comes From and When to Bend It

The 70% rule says: pay no more than 70% of the after-repair value, minus the cost of repairs. On a house that will be worth $260,000 after $40,000 of work, the maximum offer is $142,000.

Maximum offer = 0.70 × ARV − repair cost

Flippers built the rule so the 30% gap would cover selling costs, holding costs and a profit. BRRRR investors borrowed it because 70% happens to line up with a 75% refinance. The fit is close, not exact, and the difference is worth understanding.

Why 70% lines up with a 75% refinance

If purchase plus rehab comes to 70% of ARV, and the refinance lends 75% of ARV, there is 5% of ARV left over to cover everything else: buyer closing costs, hard money points, holding interest, holding costs and refinance closing costs.

On a $260,000 ARV, 5% is $13,000. Here is what those soft costs actually come to on a typical hard money deal with a six-month hold:

• Buyer closing at 2%: $2,840
• Points at 2% on a 90% loan: $2,556
• Six months of interest at 11%: $7,029
• Holding costs at $450 a month: $2,700
• Refinance closing at 3% of $195,000: $5,850

Total: about $21,000, or 8% of ARV. The refinance covers $13,000 of it. Buying at exactly the 70% rule leaves roughly $8,000 in the deal, about 3% of ARV.

That is close enough for a screen. It is not “all your money back.” The calculator shows both the 70% rule offer and the exact price that returns every dollar, which on this deal is about $135,000, or 52% of ARV for the purchase alone and about 67% including the rehab.

What moves the real number

The exact break-even price depends on things the 70% rule ignores.

Refinance LTV. At 70% LTV instead of 75%, the break-even drops by 5% of ARV, $13,000 on this deal. At 80%, it rises by the same. The refinance guide covers what lenders offer.

Holding period. Every extra month at 11% on $128,000 is about $1,170 of interest plus holding costs. A twelve-month hold instead of six adds about $9,700 to the project and pushes the break-even price down by that much.

Financing. An all-cash purchase has no points and no interest, which removes roughly 4% of ARV from soft costs. Cash buyers can pay closer to the 70% rule and still recover everything. The trade is that their cash is fully committed for the hold.

Rehab accuracy. The rule subtracts the repair estimate. A 15% overrun on $40,000 is $6,000 of cash that has to come back out.

Using the rule as intended

Screen with it. A listing that cannot get near 70% of ARV minus repairs is not a BRRRR candidate, whatever else it is. That test takes thirty seconds and eliminates most of the market.

Then compute the real break-even with your financing, your hold, and your refinance terms. The calculator’s “max purchase price” figure is that number. Offer at or below it if you need all your cash back. Offer above it knowingly if you are willing to leave some in.

When to bend it

When you have a reason and have priced it.

You plan to hold with cash in the deal. A property bought at 78% all-in leaves about 8% of ARV plus soft costs in the deal. If the rental cash flows well on what remains, that can be a fine investment. It is a rental with a small down payment, not a BRRRR that failed.

Your refinance is at 80%. Some DSCR lenders go there with a strong ratio and credit. The break-even shifts up by 5% of ARV.

You are buying with cash and refinancing quickly. No points, little interest, a short hold. Soft costs fall to 3 to 4% of ARV.

Rents are high relative to ARV. If the property will carry a 75% loan with real margin, leaving cash in costs you less than passing on the deal.

When not to bend it

Because the market is competitive. That is the market telling you BRRRR does not work at current prices, and the rule doing its job.

Because the ARV might come in higher. Appraisers are conservative on renovated property, and the refinance is on their number.

Because the rehab might come in under budget. It will not.

The 70% rule in expensive markets

In metros where distressed property trades at 85 to 90% of ARV, the rule is nearly impossible to meet, and investors sometimes conclude the rule is outdated. The arithmetic has not changed. A 75% refinance still returns 75% of ARV. A purchase at 85% all-in still leaves 10% of ARV plus soft costs in the deal. The rule is telling you what the market will and will not give back.

What has changed is the rate on the new loan. Even a deal that meets the 70% rule can fail to cash flow at 7% or more, which is a separate test. The BRRRR vs buy and hold guide covers that one. The ARV pages show the 70% rule offer and the exact break-even price side by side for every ARV from $150,000 to $1 million.